When investing in emerging markets, companies face the ever present risk of partial or full expropriation by an unfriendly host government. Recent examples include the actions of Venezuelan President Hugo Chavez, who in 2010 announced the takeover of more than 60 domestic and foreign oil field service companies, and President Rafael Correa of Ecuador, who announced a plan to force foreign oil companies to accept service contracts in place of profit-sharing agreements. Although these are extreme cases, they serve to emphasize the importance of weighing the effects of political or sovereign risk when investing in developing economies
When investing in emerging markets, companies face the ever present risk of partial or full expropriation by an unfriendly host government. Recent examples include the actions of Venezuelan President Hugo Chavez, who in 2010 announced the takeover of more than 60 domestic and foreign oil field service companies, and President Rafael Correa of Ecuador, who announced a plan to force foreign oil companies to accept service contracts in place of profit-sharing agreements. Although these are extreme cases, they serve to emphasize the importance of weighing the effects of political or sovereign risk when investing in developing economies
